Commonwealth Financial Network has forged a strategic alliance with Succession Link, a specialized fintech platform focusing on M&A and succession planning, to revolutionize practice management. Through the integration of Succession Link's bespoke solution, advisors can now seamlessly identify compatible continuity and succession partners.
The imperative for advisor succession planning is underscored by Cerulli Associates, forecasting the retirement of 100,000 advisors overseeing $10 trillion in client assets within the next decade.
Commonwealth's consolidated platform not only streamlines access to practices for sale but also furnishes advisors with valuation tools, fostering succession planning activity. Succession Link's suite of features, including compatibility scoring and advanced messaging functionalities, aligns with the overarching goal of empowering financial professionals to navigate succession challenges adeptly.
Finsum: Technology tools will be changing the game in advisor recruiting as demographic shifts begin to hit the industry.
Bonds and stocks were higher following the Federal Reserve’s decision to hold interest rates steady. The rally was a result of Fed Chair Powell reaffirming that rate cuts were still on track for later this year. He also added that the ‘policy rate is likely at its peak’.
The dot-plot also showed that FOMC members are forecasting 3 rate cuts by the end of the year, which is in line with the market’s consensus and a reduction from their previous forecast of 4 rate cuts. Committee members also upped their forecast for GDP growth to 2.1% from 1.4%, while modestly lowering their forecast for the unemployment rate to below 4%.
According to Fed futures, there is a 75% chance that the first rate cut will be at the June meeting. However, the larger message from Powell is that the Fed can afford to be patient given that the economy remains in a healthy place despite restrictive monetary conditions.
Another catalyst for equities and fixed income was Powell’s comments on the balance sheet runoff. So far, the Fed has reduced its balance sheet by about $1.4 trillion since June 2022 by letting proceeds from maturing Treasuries and mortgage-backed securities roll off the balance sheet instead of being reinvested. Powell indicated that this round of quantitative tightening was nearing an end and that discussions were ongoing about when it would be ‘appropriate to slow the pace of the runoff fairly soon’.
Finsum: Stocks and bonds were higher following the Fed’s decision to hold rates steady. Two particular catalysts were Chair Powell’s affirmation that the Fed’s next move would be to cut rates and comments about slowing the pace of quantitative tightening.
Apollo Global Management Inc. has launched a new private credit fund, initially offering no fees for the first year and halving fees for the subsequent year, with investments coming from Mubadala Investment Co. and other institutional investors.
Structured as a business development company, it diverges from the norm by providing fee breaks, unlike many similar vehicles catering to retail and high net worth investors. Contributions from Mubadala and Apollo's affiliate amount to over $290 million, while the fund's assets total over $790 million, predominantly acquired through leverage.
Named Middle Market Apollo Institutional Private Lending, the fund is an extension of the collaboration between Apollo and Mubadala, established in 2020, focusing on investments in US middle market companies, with a target allocation of 70% to 80% in loans. The fund's filing also stipulates a provision where Apollo would redistribute cash from sales or loan repayments to investors if it fails to double its investment commitments to $900 million within five years.
Finsum: Private credit could provide an uncorrelated return as macro uncertainty permeates markets.
Bond yields modestly rose following the February consumer price index (CPI) report which came in slightly hotter than expected. Overall, it confirms the status quo of the Fed continuing to hold rates ‘higher for longer’. Yields on the 10-year Treasury rose by 5.1 basis points to close at 4.16%, while the 2-Year note yield was up 5 basis points to close at 4.58%.
The report showed that the CPI rose by 0.4% on a monthly basis and 3.2% annually. Economists were looking for a 0.4% monthly increase and 3.1% annual. While the headline figure was mostly in-line with expectations, Core CPI was hotter than expected at 3.8% vs 3.6% and 0.4% vs 0.3%. The largest contributors were energy which was up 2.6% and shelter at 0.4% which comprised 60% of the gain.
Based on recent comments by Chair Powell and other FOMC members, the Fed is unlikely to begin cutting unless inflation resumes dropping or there are signs of the labor market starting to crack. Current probabilities indicate that the Federal Reserve is likely to hold rates steady at the upcoming FOMC meeting, especially with no major economic data expected that could shift their thinking.
Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short-end of the curve.
Vanguard celebrated changes in its fixed income leadership during the closing of the stock market at the Nasdaq in New York, and it continues to be a leader in Active Bond ETFs.
The recently launched Vanguard Core Bond ETF (VCRB) and Vanguard Core-Plus Bond ETF (VPLS), managed by experienced members of the Vanguard Fixed Income Group, have shown strong performance compared to their peers over the past decade.
With growing demand for active fixed income ETFs, particularly evident in the success of Vanguard Ultra-Short Bond ETF (VUSB), investors are seeking strategies that can adapt to market changes, especially with anticipated rate cuts by the Federal Reserve in 2024. Both VCRB and VPLS offer potential solutions, boasting relatively low expense ratios and providing complementary options to Vanguard's existing fixed income lineup.
Finsum: Rate cuts are a key reason to consider moving your bond ETF exposure to a more active lens in 2024
While the Federal Reserve has been successful in lowering inflation over the past 21 months, it still remains uncomfortably high. The consumer price index (CPI) peaked at 9.1% in June 2022 and reached 3.1% in its last reading which remains above the Fed’s 2% target.
Equally relevant, many of the disinflationary impulses which drove the rate of inflation lower have subsided, while there are indications of nascent inflationary pressures budding. For markets, the implication is that the status quo prevails with the Federal Reserve holding rates at 5.50% since July of last year.
While bonds enjoyed a decent rally as the Fed moved from hiking to holding steady, volatility remains elevated due to the current uncertainty about inflation and Fed policy. As a result, the bulk of gains in fixed income proved to be fleeting. According to John Hanock, these conditions are ideal for active fixed income as managers will be able to take advantage of inefficiencies and dislocations caused by the current environment.
The firm believes that active managers will be able to outperform by overweighting quality, intermediate-term bonds, and defensive sectors. It also likes mortgage-backed securities (MBS) due to attractive yields without sacrificing quality. In contrast, it wants to underweight cyclical sectors and high-yield bonds given its concerns about a weakening economy in the second-half of the year.
Finsum: Volatility has risen for fixed income ever since the outlook for inflation and Fed policy have gotten murkier. Here’s why John Hancock believes active fixed income is the ideal way for investors to take advantage of attractive yields.
The Bureau of Labor Statistics reported that the US added 275,000 jobs in February which was slightly higher than expectations. However, the report indicated some softening in the labor market as job gains in January and December were revised lower by a collective 167,000, and the unemployment rate inched higher to 3.9%.
It resulted in bonds moving higher as odds increased that the Fed would cut rates in June. Additionally, the number of hikes expected in 2024 also rose from 3 to 4. Most strength was concentrated on the short-end, which is more sensitive to Fed policy as yields on the 2-Year Treasury note declined by 10 basis points. There was much less movement on the long-end as the 10-year Treasury yield was lower by 3 basis points. Earlier this week, bonds also caught a bid as Chair Powell’s testimony to Congress was interpreted as being dovish.
Overall, the jobs report perpetuates the status quo in terms of the Fed remaining data-dependent, while the path of the economy and inflation remain ambiguous. On one hand, wages and the labor market have defied skeptics who were anticipating a downturn. But there has been acute weakness in areas like manufacturing and services which have historically coincided with a weakening economy.
Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short end of the curve.
Managing investments can be overwhelming for advisors amidst their busy schedules, but model portfolios offer efficiency, diversification, and transparency, allowing advisors to focus more on their clients. Advisors have the option to create their own portfolios or use third-party models, with the former being more popular as it allows them to tailor investments while maintaining efficiency.
The primary benefit of model portfolios is the quick and efficient implementation of advisors' best ideas, essential for business growth. While clients benefit from the advisors' expertise, there may be instances where they desire investments outside the model, requiring advisors to balance client preferences with their investment strategies.
Overall, model portfolios streamline investment management, enabling advisors to concentrate on building strong client relationships and providing personalized financial guidance.
Finsum: Models not only meet the clients’ needs but they give more opportunities to develop a relationship with clients to better understand financial concerns.
Recent bond market volatility has caused discomfort for fixed-income investors, but it presents an opportunity for active management to potentially enhance returns.
Despite efforts by the U.S. Federal Reserve to tighten monetary policy and curb inflation, uncertainty remains as to the future direction of interest rates. This uncertainty has led to fluctuations in bond yields, creating both challenges and opportunities for investors.
By focusing on quality and liquidity, particularly in areas such as agency mortgage-backed securities, active managers can navigate these challenges effectively. As the market evolves, active management offers the flexibility to capitalize on changing conditions and uncover pockets of opportunity, potentially outperforming despite ongoing uncertainty.
Finsum: Macro uncertainty is giving active managers an upper handed in bond markets, and it could lead to additional alpha.
Emerging market bonds are offering a compelling opportunity for investors to lock in attractive yields while also having the potential for price appreciation. While there are many ways for investors to get exposure, the Vanguard Emerging Markets Government Bond ETF (VWOB) is one of the most liquid and diversified options. It currently pays a yield of 6.8% with an expense ratio of 0.20% and tracks the Bloomberg USD Emerging Markets Government RIC Capped Index.
Investing in emerging markets certainly means more risk due to lower credit quality, however the fundamentals are supportive of continued strong performance in 2024, while macro trends are favorable. JPMorgan estimates that emerging market economies will expand 3.9% this year, outpacing the 2.9% growth rate of developed market economies. It sees lower inflationary pressures due to weaker commodity prices which means that emerging market central banks should be able to cut rates, generating a tailwind for emerging market debt.
In 2023, emerging market bonds were up 11%. JPMorgan is forecasting that the category should also have double-digit returns in 2024. It believes the major risk to this outlook is inflation not falling as expected which limits the ability of central banks to cut rates, especially since the market has already priced in modest easing.
Finsum: Emerging market debt has major upside for 2024 due to attractive yields, strong fundamentals, and expectations that interest rates will be lowered.
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It’s a simple truth: the more you do something, the better you’ll become at that task. For financial advisors, communicating with clients consistently and confidently is one of those skills that is essential to a healthy practice.
Let’s apply this concept to explaining to a client their investment portfolio: how it was constructed, how it’s maintained, and why it has the components it does. Imagine two scenarios: one where you’ve built customized portfolios for each of your clients and another where you’ve implemented a set of model portfolios across your book of business. In which scenario would you feel more confident explaining each approach to each client?
The point is this: model portfolios offer more than just operational efficiency. They provide advisors with the benefit of consistent communication. By implementing a defined set of investment strategies across your client base, you can polish your investment story into a clear and consistent narrative.
This consistency translates to proficiency and, ultimately, confidence. You become adept at articulating its nuances and rationale by repeatedly explaining a unified investment approach. And the more practiced you become at telling your story, the more confidence you convey to your clients.
Finsum: Find out how model portfolios can help you tell your clients a consistent and compelling investment story, building trust and confidence.
With the introduction of Bitcoin ETFs in January 2024, financial advisors are getting more questions from clients about whether it makes sense to consider these types of investments for their portfolios.
One topic that will undoubtedly get more attention in the press this year (2024) is the Bitcoin halving event, likely to occur in spring or early summer. Regardless of their view on this asset type, advisors should prepare themselves for client questions regarding this event.
Essentially, the Bitcoin protocol has pre-programmed events that periodically reduce by half the amount paid to the entities that verify Bitcoin transactions. Payments to these entities, called miners, are the only way new Bitcoins enter circulation. This means the rate at which new Bitcoins enter circulation is reduced. The point when the reward to miners is reduced by half is called a halving event.
The impact of a halving event on Bitcoin’s price is complex and debatable. Some believe that the reduced rate of new supply will cause the price of Bitcoin to rise. Others might make the case that factors beyond supply will have a more significant impact on the price in the future. Regardless, the performance of Bitcoin around the time of previous halving events is no guarantee of future price movements.
Finsum: Bitcoin is closing in on a halving event, and advisors should know the basics to answer client questions.
Fidelity Investments launched a new active fixed income ETF this week, the Fidelity Low Duration Bond Factor ETF (FLDB). The ETF will invest 80% of its assets in short duration, investment-grade debt, consisting of floating rate notes and Treasuries, with a fee of 20 basis points. It seeks to balance credit risk and interest rate risk while outperforming benchmarks.
Greg Friedman, Fidelity’s head of ETF management and strategy, noted, “It’s an asset class within fixed income that did not have any coverage until this morning. It fits a client's need to have that short duration exposure to a broad-based market of fixed income products.”
Fixed income ETFs are experiencing a boom in terms of new issues and inflows. According to Tony Kelly, the co-founder of BondBloxx, assets in fixed income ETFs will reach 40% by the end of the decade from 20% currently. Active ETFs are finding traction as they allow for specific thematic exposure without sacrificing liquidity. Last year, assets under management for active ETFs increased by 37%.
Fidelity is also jumping on the trend. In addition to launching FLDB, it debuted the Fidelity Fundamental Large Cap Value ETF (FFLV). Its new line of ‘Fundamental suite ETFs’ will be active as it will utilize a quantitative overlay to their typical process. In total, Fidelity has 66 ETFs with $55 billion in assets under management.
Finsum: Fidelity is betting big on active ETFs as it launched 2 new ones this week. Investors have been receptive to these products as it gives them narrow exposure in a liquid vehicle.
The rise in bond yields presents an opportunity for fixed income investors to find value according to Penter Bentley, the co-manager of the BNY Mellon Global Credit Fund. He notes that bond yields are close to their highest levels since the financial crisis and that conditions have been improving for investment-grade debt.
Due to these developments, he anticipates healthy returns for global and regional investment-grade credit. A key factor is borrowers have strong balance sheets with lower leverage than before the pandemic. In fact, Bentley believes that certain segments within fixed income could perform better than equities. He identifies ‘fallen angels’, short-duration high yield bonds, and emerging market corporate debt as having the most potential for outperformance this year.
Some uncertainties that could cloud this outlook including the election in November, the Fed’s ability to cut rates, and a tense geopolitical situation with Russia-Ukraine and the Middle East. Thus, investors should expect volatility to persist all year which means more opportunities for active managers to outperform.
Another place that fixed income investors can find value is with global credit. Historically, global credit has delivered better returns when markets are emerging from a downturn. In terms of global credit, Bentley sees opportunities in European credit markets and emerging market debt.
Finsum: Peter Bentley, the co-manager of the BNY Global Credit Fund, believes that investors can find value in fixed income. He sees the potential for strong returns in global credit, short-duration high yield debt, and ‘fallen angels’.